Update iPhone 4 iOS 4.2.1 without updating baseband
When you update iOS 4.2.1 on your iPhone 4 this will also upgrade baseband of your iPhone 4 and the bad thing is Unlock for the latest baseband is not available at the moment. But there is a TrickyWay to preserve the iPhone 4 baseband while updating iOS and then Unlock iPhone with UltraSn0w later.
Note: You must preserve your iPhone 4 baseband 01.59.00 while updating iOS 4.2.1, other wise you will not be able to unlock your iPhone at the moment.
See this guide How to update iPhone 4 iOS 4.2.1 and preserve baseband. (after updating iOS, come back here on the next step to start Jailbreak).
Jailbreak iPhone 4 4.2.1
Download Greenpois0n to jailbreak iOS 4.2.1 iPhone 4
Turn off you device
Run Greepois0n on your computer and and hit the Jailbreak button.
Read the on screen instructions to put your iPhone in DFU mode
Now GreenPois0n started the untethered jailbreak process for iPhone 4
When GreenPois0n finish the iOS 4.2.1 jailbreak process then you will see the following screen with a Complete! button
Find Loader app icon on your iPhone 4, tap on it and install Cydia.
Now you have successfully Jailbreak your iPhone 4 4.2.1. If you successfully preserved your iPhone baseband 01.59.00 then follow the link given below to unlock your iPhone 4.
How to Unlock iPhone 4 baseband 01.59.00